There is, at heart, a failure to produce coherent policy, which is always due to failure to be honestly equitable about the consequences of coddling some lobbies over others.

Why is it stepping into the maelstrom to tinker with Fx instead of competing fiscal policies?

There's a simple conclusion from these observations. We cannot realistically achieve floating Fx while CBs remain "independent" of Treasury operations, fiscal policy and the Public Purpose of competing nations. That outcome would be illogical, given human nature.

Investor, saver & banking lobbies all coalesce in an urge to protect and insulate themselves from the responsibility of managing public policy in their home countries.

For free-riders, escapism is always a temptation. However it is not a productive strategy for members of any aggregate. Cost-of-coordination is always the highest cost, and return-on-coordination is always the highest return.

Warren Mosler has things exactly right. When we effectively went off the gold std for the final time - way back in 1933 - the very purpose of most CB functions became either negligible or completely obsolete.

Most CB functions today should be run as automatic apps, out of a lowly Treasury office in some back room. We could save a lot of expensive real-estate, salaries and public confusion by reducing what's left of Fed functions to automatic stabilizers.

6 comments:

Roger: "Investor, saver & banking lobbies all coalesce in an urge to protect and insulate themselves from the responsibility of managing public policy in their home countries.

For free-riders, escapism is always a temptation. However it is not a productive strategy for members of any aggregate. Cost-of-coordination is always the highest cost, and return-on-coordination is always the highest return."

I would put it slightly differently. The ruling elite, which alone has the influence to manipulate public policy, including monetary and fiscal, operates in terms of short term gain and does not care much about the blowback, because they realize that as long as they are in power, they can manipulate any situation that arises in their favor. So they are interest in only one thing more than extraction and that is preserving influence and expanding power. This is the underlying social, political and economic situation in late-stage capitalism. It's late stage, since as Marxists point out rent-seeking leads to a falling rate of profit as capital is misallocated, which Austrians call malinvestment, which Schumpeterians see as declining innovation and PKE economists describe as Ponzi finance. Alan Greenspan confessed in effect that he was mistaken about the ruling elite not killing the goose that lays the golden egg for short terms gain.

I should make that clearer by saying that I think it is necessary to distinguish between ignorance and perversity. These are really smart people and can do the numbers. They know that they could increase the absolute amount of their wealth by focusing on growing the pie, but they have chosen to focus on increasing relative share of the pie even if it shrinks, at least in part because they realize that changing the system to increase adaptive rate would mean focusing on productive contribution and reducing economic rent. The economic rent is the free ride that their status and influence depends upon. So increasing knowledge is not going to be the decisive factor. Rather, it must be reducing perversity, which involves broad and deep institutional changes.

America's financial and military powers and political enablers are doing their worst to preserve the dollar's reserve currency statis. So fx is totally manipulated to serve that end, among others. Power trumps common interest. And the manipulations are only "perverse" if you don't agree with the plutocratic ends. From the perspective of TPTB the actions are rational and appropriate because the ends are served by the means.